Social and Behavioral Sciences Commons^™

Can Progressive Taxation Contribute To Economic Development?, Christian E. Weller, Manita Rao

Christian Weller

Financial instability has increased for many economies in the face of greater capital mobility. Eliminating capital flows, especially portfolio investment flows, may reduce volatility, but it could also result in domestic capital constraints. To overcome this dilemma, policymakers may consider alternatives, such as progressive income taxation, that could raise domestic funds. In this paper, we combine several macro economic data sources to test the link between progressive taxation and economic stability, economic growth, inequality and fiscal policy. Based on data from 1981 to 2002, we find that progressive taxation provides policymakers with the ability to conduct countercyclical fiscal policies, which …